Dynamics of Labor Market Earnings and Sector of Employment in Urban Mexico, 1987-2002.

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Duval Hernandez, Robert

Abstract

This dissertation studies labor earnings mobility in the short-run and the structure of labor markets in urban Mexico, from 1987 to 2002.
In the first part it gauges the average earnings mobility in the economy and whether mobility equalized longer-term earnings. It also analyzes whether the mobility patterns differ by groups of the population, and whether mobility reduced longer-term earnings inequality between and within groups. The groups considered are age, education, gender, quintile of initial earnings, sector, and region groups.
In general, average earnings mobility fluctuated around zero, with the exception of the late eighties and early 2000, when individuals experienced gains, and of the years following the 1994 Peso crisis, when individuals experienced large losses. These patterns are shared by the majority of the groups of the population, with the exception of initial earnings quintile and sector groups. For these groups, the most advantaged individuals experience the largest losses, while the most disadvantaged ones experience the largest gains. Furthermore, mobility equalized longer-term earnings for the entire population during most of the periods studied, and it helped reduce longer-term earnings inequality within-groups. However, mobility only sometimes equalized longer-term earnings between groups.
The second part of the dissertation studies short-run earnings dynamics at the individual level. In particular, it examines whether mobility benefits more the initially advantaged individuals. Regression analysis shows a high level of convergence between the earnings of rich and poor. However, part of this convergence reflects transitory adjustments in earnings. In practice, most of the individuals keep their permanent advantage, leading to little convergence between rich and poor. The major exception to this finding occurs in the aftermath of the Peso crisis, when individuals with a high permanent advantage experienced greater losses than the rest of the population. The ceteris paribus impact of socioeconomic characteristics of the individual on earnings mobility is gauged. Education, gender, region and transitions between sectors are important factors affecting earnings mobility.
The final part of the dissertation tests whether Mexican urban labor markets are segmented between formal and informal sectors. An econometric structural model of sector choice is estimated, and a strong evidence of rationing of formal sector jobs is found. The estimations also show that individuals rationed out of the formal sector would experience large gains by moving into the formal sector.